record inequality

[Ghent12]

Re: record inequality

Rich have always been richer, and in aggregate gain wealth faster than the poor because they play a disproportionate role in creating the wealth. If you want to follow "wealth equality" to its logical conclusion, you can't get more equal than everyone having zero wealth. The rich will continue to be getting richer just as long as wealth remains creatable and transferable.

Wealth redistribution schemes have created some interesting side effects, including the re-introduction of "producing children" as a marketable skill for women. Artificially inflated prices for labor have proven disastrously unsustainable by the more extreme cases, at least unsustainable without a helping hand from the people at large. By people at large, I mean tax payers.

If a rich person is getting rich "legitimately" then it is not a bad thing. The problem, as so often noted, is the excessive corruption, theft, and so forth that occurs. Much of this, however, is a reason to further reduce the role of government in all economic matters, as so much of the efforts of the government go towards protecting the rich in all forms: FIRE, welfare state benefactors, warfare state benefactors, etc.

[bart]

Re: record inequality

From my own work a few years back, recently updated.

[mikedev10]

Re: record inequality

Poor wealth distribution is not a problem. It is a symptom of a problem: concentration of political power. In the 1920s it resulted from the financial influence of industrial elites on government. Since the 1980s it has resulted from the financial influence of FIRE elites on government.

oooh i like this. this is smarty man speak.

[vinoveri]

Re: record inequality

The love of money is the root of all evil" (Christian aphorism)
Note the phrase "love of money", not money itself.
Loving money would seem to necessitate the pursuit of it for its own sake, as opposed to pursuing something (business, career) and gaining money as a consequence. "Can't serve God and Mammon both" means (at least in one context) that there will always be circumstances where the pursuit of money and the doing of the good/right conflict, and if one loves money more than what's right, than one will choose money over the good.
My casuists friends will tell me that one with money, can give it away, do good, charitable, and altruistic acts, and so money can be used for good. This is of course true, but if someone wants to do good to others, then they love those others (love is the willing the good of others after all). This person does not love money, but loves the other, and pursues money out of love for the other (e.g., family).
Now what can you do with money, well lots of things, but generally money allows you to buy stuff, the more you have, the more stuff you can buy. Pretty soon you can buy up land, businesses, and anything else money can buy. Disequilibrium will be reached at some point when the smart, lucky, hard-working, thrifty, corrupt, etc. (take your pick, mix and match) acquire a disproportionate amount of the wealth, and the folks who are (take your pick again) poor, lazy, unlucky, stupid, not in love with money, etc. are unable to feed, clothe, and protect their families, because society has tolerated the development of a “rentier” class, who continue to acquire wealth “on the backs” of others. The feudal system is not a just system and is unsustainable without force (and even then has its limits) as history has shown us.
Greed and avarice are not good things (notwithstanding Gordon Gecko's famous line to the contrary more than 20 years ago which I would submit may not have been inconsequential in unleashing the barbarians at the gates). Envy is not a good thing either of course to the extent that one is envious of others because they have more money. Perhaps it is envy itself that is also the source of the “love of money” ?
Nothing wrong with money and wealth and in fact much right with wealth. It is the love of these over all else which ends up causing things to go awry.

[marvenger]

Re: record inequality

some small business can probably function somewhat for the love of the business, but large corporations function at the highest profitability rate they can generate or else they do not get funding. the paramaters of how the world works here means its all about the love of the money, the bottom line is all that counts. adam smiths magic hand starts to not look magic when taken to the extreme, which he never wanted, company's need to externalise costs and find some passive money flows to remain competitive. it becomes hard to argue with idiots like charles chuck prince the third when he says you've got to dance, that's just the dynamics of the system. sorry you've got to regulate or change the system.

[dcarrigg]

Re: record inequality

I too see financialization of the economy as a key factor. But didn't that same timespan also coincide with:

• industrialization of the developing world (and subsequent opportunities for labor arbitrage)
• decline of organized labor
• rise of high tech industry (fewer jobs requiring higher education); fall of assembly line manufacturing industry (lots of jobs requiring little education)
• rise of imigration from south of the border to fill low-skill jobs
• addition of women to the workforce

All that said, I think financialization of the economy explains the run-away at the top of the income distribution (e.g. CEO or investment banker pay). The other factors I cite probably had a big impact on the part of the income distribution they influence, but since income is bounded on the low side at zero, factors that tend to reduce the income of the low-earners matter much less than factors that increase the income of the high-earners, when we're talking about disparity.

Exactly, Ash. Not many PhDs made it onto jk's chart above, I can assure you - nor did many women or people who lost jobs to immigration or outsourcing.

The decline of organized labor may have something to do with it...but it is more of a symptom than a cause.

Once upon a time workers knew where their bosses were located - and what their companies did.

Introducing unnecessary complexity into a complex system is a good way to guarantee strange results.

The FIRE economy not only introduced unprecedented complexity onto the economy at large by pumping it full of debt, but also helped out with pumping out the CO2.

The ticket's bought. Time to take the ride.

[jk]

Re: record inequality

from today's askfleck:

Excellent post from 'derryl' on "Seeking Alpha" in response to an article entitled "Waiting for the Next Apology" (from the Fed).

"All through the Maestro's overseeing of the bubbles, William White at the BIS warned the central bankers of exactly what was happening and of the systemic risk that was building up. If any central banker didn't see it coming it was because he didn't want to see it, even though it was pointed out in the strongest possible ways by White and cohorts at every BIS annual meeting for years.

Cheap debt for too long creates massive distributive imbalances in a nation's financial economy. Too many people are able to borrow and spend too much money on overpriced assets, and too many people are able to get rich selling overpriced assets to the debtors. When the music stops the debtors have no way of repaying their loans and the rich sellers have no profitable opportunities to invest their money.

To keep an economy going you need the widest participation of all your citizens. But when half the people are broke and the other half are rich,
broke people can't contribute and rich people don't want to risk what they already have on 'loser investments' like the productive economy. It is a healthy middle class working, striving, investing, producing--as they try to improve their lot who keep an economy going.

Credit bubbles hollow out the middle and bifurcate your population into winners and losers. That is the real danger of bubbles, the financial impasse of rich and poor that stymies real economic efforts on the part of the great middle class."

[dcarrigg]

Re: record inequality

• You cannot help the poor by destroying the rich.:p:p
• You cannot strengthen the weak by weakening the strong.:p:p
• You cannot bring about prosperity by discouraging thrift.:p:p
• You cannot lift the wage earner up by pulling the wage payer down.:p:p
• You cannot further the brotherhood of man by inciting class hatred.:p:p
• You cannot build character and courage by taking away men's initiative and independence.:p:p
• You cannot help men permanently by doing for them, what they could and should do for themselves.

rjwjr, I believe that I once read in your profile that you are a manufacturing co. owner.

I think that most of this thread is dedicated to the FIRE industries, you know, the ones who, unlike you, produce nothing.

And yet you have these quotes: all by William Boetcker - a Presbyterian Minister, who must never have read Jeremiah 5, which one could easily build a FIRE economy sermon around in this day-in-age, just sub bankster for priest (those in charge), economist for prophet (those who predict and justify) and lower/middle-class for fatherless or needy (those who have no say in the activities of the aforementioned):

"26 For among my people are found wicked men: they lay wait, as he that sets snares; they set a trap, they catch men.
27 As a cage is full of birds, so are their houses full of deceit: therefore they are become great, and waxen rich.
28 They are waxen fat, they shine: yes, they overpass the deeds of the wicked: they judge not the cause, the cause of the fatherless, yet they prosper; and the right of the needy do they not judge.
29 Shall I not visit for these things? said the Lord: shall not my soul be avenged on such a nation as this?
30 A wonderful and horrible thing is committed in the land;
31 The prophets prophesy falsely, and the priests bear rule by their means; and my people love to have it so: and what will you do in the end thereof?"

[dcarrigg]

Re: record inequality

Poor wealth distribution is not a problem. It is a symptom of a problem: concentration of political power. In the 1920s it resulted from the financial influence of industrial elites on government. Since the 1980s it has resulted from the financial influence of FIRE elites on government.

FRED,

Repectfully, I think that the concentration of political power is also a symptom - albeit a virulent one deadly in its own right. I think that the introduction of too much complexity into a system - into the lives of every day people (including politicians) in a republic-market economy - is the real disease vector.

Of course, the disease attacks the state's one defense first and uses it for its own sake...

[dcarrigg]

Re: record inequality

I don't approve of a rigged or unfair playing field either. I've also stated on numerous occasions that all of these crooks and criminals should get their just punishment. I continue, however, to have an issue with this surprisingly (for iTulip) premise that many of the top 5% are criminals. Look, if there are 300,000,000 people in the US, then the top 5% is 15,000,000 people. Other than Madoff, Paulson, and a handful of others that you are mad at, you got a longgggg way to go to indict 14,000,000+ "rich" people for the actions of a few very bad apples.

Even if the wealth distribution data is not based on total population, but on something like "wage earners" or "heads of household", you're still talking about something like a 100,000,000 total data set which would result in 5,000,000 people in the top 5%. Do you truly believe that the majority of these people are criminals?

As I've said more than you care to hear...quit blaming "the rich", quit blaming the top 5%, blame the criminals...and quit calling these criminals "the rich" or "the top 5%" because it is a misleading and faulty label at best, while inciting class warfare at worst.

rjwjr, This article was about the top .1%. I think you may be right when you push out to the whole top 5%.

Still this being said, what about the top 1%?
Can you believe that the majority of 100,000 are criminals?

Or, put another way, 2% of the population is in prison. 6,000,000. Do you truly believe that the majority of these people are criminals?

I am not being rhetorical...

[dcarrigg]

Re: record inequality

from today's askfleck:

Excellent post from 'derryl' on "Seeking Alpha" in response to an article entitled "Waiting for the Next Apology" (from the Fed).

"All through the Maestro's overseeing of the bubbles, William White at the BIS warned the central bankers of exactly what was happening and of the systemic risk that was building up. If any central banker didn't see it coming it was because he didn't want to see it, even though it was pointed out in the strongest possible ways by White and cohorts at every BIS annual meeting for years.

Cheap debt for too long creates massive distributive imbalances in a nation's financial economy. Too many people are able to borrow and spend too much money on overpriced assets, and too many people are able to get rich selling overpriced assets to the debtors. When the music stops the debtors have no way of repaying their loans and the rich sellers have no profitable opportunities to invest their money.

To keep an economy going you need the widest participation of all your citizens. But when half the people are broke and the other half are rich,
broke people can't contribute and rich people don't want to risk what they already have on 'loser investments' like the productive economy. It is a healthy middle class working, striving, investing, producing--as they try to improve their lot who keep an economy going.

Credit bubbles hollow out the middle and bifurcate your population into winners and losers. That is the real danger of bubbles, the financial impasse of rich and poor that stymies real economic efforts on the part of the great middle class."

jk,

I wonder what you think of bubble velocity? I mean, how fast we move from one bubble to the next.

It would seem to me that credit bubbles don't have to bifurcate the population into winners and losers to this extent simply by their nature.
Seems like it's how fast we move from one bubble to the next that keeps the majority from adapting.

[ASH]

Re: record inequality

Too many people are able to borrow and spend too much money on overpriced assets, and too many people are able to get rich selling overpriced assets to the debtors. When the music stops the debtors have no way of repaying their loans and the rich sellers have no profitable opportunities to invest their money.

That's an important aspect of financialization of the economy that I missed -- thanks for posting. I had been thinking entirely in terms of the impact on the upper end of the income distribution, but clearly there is an impact on the low end, as well.

Ironically (given differences of opinion) this also ties in pretty well with rjwjr's point about financial prudence playing a role in stratifying wealth according to ability. In earlier times, with dearer credit, it seems as though the less financially astute had less rope with which to hang themselves. Ease of taking on debt would seem to increase the opportunity to make poor financial decisions, and magnify the consequences.

[dcarrigg]

Re: record inequality

That's an important aspect of financialization of the economy that I missed -- thanks for posting. I had been thinking entirely in terms of the impact on the upper end of the income distribution, but clearly there is an impact on the low end, as well.

Ironically (given differences of opinion) this also ties in pretty well with rjwjr's point about financial prudence playing a role in stratifying wealth according to ability. In earlier times, with dearer credit, it seems as though the less financially astute had less rope with which to hang themselves. Ease of taking on debt would seem to increase the opportunity to make poor financial decisions, and magnify the consequences.

Ash,

Thanks for pointing this out - I don't think I gave it the attention it deserved when I read it initially.

[raja]

Re: record inequality

Are we talking top 5% of income? To get into the "top 5%" in terms of income, you need a household income of $155k, according to the paper that Largo linked. That's an income level that is readily achievable through labor alone, for working professionals -- not the ill-gotten fruits of the rentier class (to channel comrade Hudson). For instance, that's two working engineers in Oregon; in the Bay Area that's one working engineer. If you're worried about "parasites" (and I hesitate to characterize anyone who owns a profitable asset as such), then you should restrict your hostility to those whose income is primarily drawn from owning assets rather than the fruits of their labor. Of those, you might also want to exempt retirees who live off of invested wealth rather than the public dole, when they can no longer support themselves by their labor. For my part, I see most everyone else saying the same thing, but disagreeing about semantic emphasis. I've got no beef with "the rich" -- I admire success -- but I resent those whose extreme wealth results more from the structure of their industry than their personal merit (envy rears its ugly head), and I want a piece of those who have achieved wealth by deceit.

ASH,

Let me approach this theoretically, and see if we agree or disagree on that level.

In my value system, I'm not even O.K. with someone who works hard earning $155,000/year (your example) while another person who works hard (or wishes to work but cannot find work) cannot afford "basic" necessities for their family. There is a finite pie, and if one person gets a big slice while another goes wanting, I consider the one getting the big slice sucking the life out of the latter, albeit not necessarily intentionally being a parasite.

What do you think?

So, we now apparently have a society in which 5% own almost 60% of the wealth. I consider that a problem. If I have understood EJ and Fred correctly, they also consider that a problem (or the symptom of a problem).

Do you not think it's a problem?

Isn't the rectification of the problem to move some of the wealth from the rich to the poorer in some fashion?

The rich will say to those favoring redistribution, "Why don't you give your money to the poor?", ignoring the fact the problem is systemic. Their unintelligent retort is typical of those who are beyond reasoning. The don't want to let go of one penny of their wealth, and they will toss out any response regardless of merit. Those folks -- the let-them-eat-cake crowd -- won't be moved without pitchforks and torches, and even then they will feel gravely wronged.

I think the answer is an Economic Bill of Rights.
It would guarantee a redistribution of wealth so that every segment of society willing to work would receive the basic necessities. The rich could earn as much as they wanted . . . capped only by the requirement that everyone willing to contribute to society as they are able receive food, shelter, work and basic health care.

One final comment:

Assets and the income therefrom are the fruits of one's labors. Nothing wrong with making money from the profits of past hard work. However, when assets receive preferential treatment leading to maldistribution of wealth, that's not good.

IMO, the minimum litmus test of any economic societal structure is making sure that every one deserving is taken care of, before the stronger, more well-placed, and more intelligent members of society get their yachts and Rolls Royces.

[jk]

Re: record inequality

i suppose it's a moral question how much rope you give people. i once had an interesting email exchange with [?] dolan - the editor of barron's. annoyed by some editorial he'd written, i accused him [essentially] of supporting the financial industry's interests because they -via their ads in that magazine- were paying his salary. he didn't publish my letter, but wrote back to express his offense at my statement. we exchanged a couple of emails, and i said his position appeared to support the legalization of ponzi schemes- buyer beware. he wrote back saying, yes, he thought financial frauds like ponzi schemes should be legal. translation: let the wolves eat the sheep.